RBI Deputy Governor warns against early celebration over inflation fall

Mumbai: Warning against "early celebrations" over recent fall in inflation print, RBI Deputy Governor HR Khan on Friday said there are structural issues affecting prices which are complicating the fight against price rise, but expressed optimism that better days are ahead on growth.

"When the global recovery is also tepid and there are many geopolitical issues, we need to be cautious when we celebrate early and we cannot be an outlier, particularly, in terms of inflation from among the BRIC countries," Khan said addressing a CII-CFO summit.

The RBI has set a retail inflation target of 8 percent for next January and 6 percent a year later. Price index continued its fall in September when it came down to 6.47 percent. But of late, the Finance Minister and corporates and even banks have been calling for knifing the interest rates saying growth has lost momentum in the second quarter.

In the comments, which come ahead of the Reserve Bank's review of the monetary policy on December 2, Khan cited the example of milk prices being high in villages of Uttar Pradesh, saying all the produce gets diverted to the cities.

The Reserve Bank has been maintaining rates at an elevated level citing inflation and the need to fight price rise strongly, even though calls for a growth-propping cut in rates have been growing shriller. Over the past 14 months since Governor Raghuram Rajan took over the mantle, he has raised the policy rates three times.

"Growth sentiments are good, the savings-investment equilibrium is improving," Khan said, adding the country can be "cautiously optimistic" on the domestic front.

He specifically mentioned factors like a stable government which is making attempts at structural reforms as "encouraging" factors, but tempered the expectations with possible scenarios that can dent the momentum.